Outstanding results as cost efficiency led to margin improvement

Net gaming revenue rose 23% qoq on higher rolling win rate, and non-gaming revenue did well (+17% qoq) as visitation to its attractions grew and hotel occupancy remained high at 92%. But the highlight was the reduction in expenses (-6% qoq, -28% yoy), due to cost efficiency initiatives implemented in 2Q.

Adjusted EBITDA margin of 40.2% was the highest in nine quarters.

Efforts to reduce reliance on VIP business paid off

Rolling chip volume fell in the mid-teens % qoq as it continued to scale down its VIP business, partly offset by higher rolling win rate of 3.3% (2Q: 1.7%). Even on a holdnormalised basis, adj. EBITDA rose 12% qoq to S$215m, with lower VIP volume hardly making a dent amid relatively steady mass gaming volume (low-single-digit % fall qoq), cost rationalisation in the VIP segment, and lower bad debt charges (-6% qoq, -46% yoy). GENS guided for more cost savings and lower bad debt in the next two quarters.

Reinvesting in RWS to position for the premium mass segment

In addition to the refurbishment of Hard Rock Hotel announced in 2Q, GENS plans to fully upgrade the Maritime Experiential Museum by end-2017.

It has other property enhancement projects in the pipeline in 2017 to rebrand and reposition Resorts World Sentosa into a premium lifestyle destination and better target the premium mass market.

We think this could yield better returns and margins if successful, amid efforts to shift away from VIP to mass. Management previously guided for 2017 capex of c.S$100m.

Jeju stalled by a typhoon; turning more hopeful on Japan

The soft opening of Resorts World Jeju was initially targeted for early Oct; however, construction of the integrated resort and sales of the residential units were delayed by a typhoon that resulted in flooding at the site. Damage is expected to be minimal with insurance coverage.

Management is also turning more hopeful on the casino bill being passed in Japan during the upcoming parliament session in Nov; it will make a decision on whether to redeem its perpetuals in Oct 2017 based on the outcome in Japan.

Surprise interim DPS of 1.5 Scts and lower interest cost

GENS surprised us by declaring an interim DPS of 1.5 Scts. This represents a 101% payout ratio of 9M16 core EPS.

Historically, it has only paid out annual dividends in 4Q (FY15: 1.5 Scts). It is still in the process of finalising a formal dividend policy, but aims to still pay a final dividend in 4Q. GENS also repaid S$387.5m in bank borrowings in 3Q, which resulted in lower interest costs (-17% qoq, -32% yoy).

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